UPA-II made extravagant use of the fiscal room created by the high-growth-enabled tax revenue boom in the previous half a decade to buttress its social inclusion agenda. The difficult external situation created the setting conducive to enhanced government spending. Since this approach squeezed credit — particularly for corporates — outlived its purpose and was not complemented by much-needed structural reforms, the regime’s legacy has turned out to be a considerably weakened economy, marked by stubbornly high inflation, low rates of expansion and tepid growth impulses.
To be more current, in 2013-14 the average growth in industrial output was minus 0.1%, the lowest in at least three decades, according to data released on Monday. Also, retail inflation hit a three-month high in April of 8.59%, demonstrating the inflation genie’s untamed status. Clearly, as the second Manmohan Singh government leaves office later this week, the economy, having descended into a deep morass, will have barely reinvented itself.
Of course, although by largely artificial means, UPA-II managed to reverse the fiscal slippage and also rein in the current account deficit which for a while had looked ominous.
When judged by various other economic parameters, however, the track record of the outgoing coalition government, admittedly run by the left-of-centre elements in the Congress party led by its president Sonia Gandhi, doesn’t score well (see chart).
Of course, despite all this, GDP growth averaged 6.7% in the UPA-II tenure. Though this pales against 8.4% growth during the UPA-I period, it is still higher than 5.9% in the five years of NDA government. What takes away the sheen from the UPA’s economic management, however, is the apparent decline in the economy’s potential growth rate under its watch, reflected in and caused by the precipitous decline in both investment and consumption.
Worse, wholesale price inflation averaged a little over 7% in the UPA-II period, compared with 5.9% during the previous regime and 4.6% in the NDA (1999-2004) term. Factory output measured on the Index of Industrial Production (IIP) averaged a dismal 3.5% in the outgoing government’s tenure compared with 9.6% during UPA-I and 5.4% under the NDA.
Poverty reduction and, to a lesser extent, employment are the two areas in which the UPA-II outperformed the previous two regimes, UPA-I and NDA. But even the employment growth rate (on Current Daily Status basis) has in fact fallen sharply from 2.62% in the previous (2004-05) NSS round to 0.92% in the 2009-10